Asian currencies rise on news of RI capital control plan

Asian currencies rise on news of RI capital control plan

SINGAPORE (Dow Jones): Mounting confusion over whether
Indonesia would impose capital controls and the resilience in
most regional stock markets lifted Asian currencies late Friday,
dealers said.

Remarks by Indonesian officials Thursday downplaying the
possibility of capital controls being imposed to stabilize the
rupiah did little to ease market jitters.

International Monetary Fund Managing Director Horst Koehler's
comments Thursday that capital controls shouldn't be a "taboo"
have stoked concerns the body might give Indonesia the green
signal for adopting such measures.

Investors are anxiously awaiting news from Koehler's meeting
with President Abdurrahman Wahid in Jakarta Sunday. The IMF chief
said Thursday he would discuss the issue of capital controls with
the Indonesian leader.

Market participants were further perplexed by Indonesian Trade
and Industry Minister Luhut Panjaitan's remarks earlier Friday,
which gave the impression that he supported the idea of
restricting movement of capital. The minister said Indonesia's
foreign exchange system was too liberal, adding that the issue
was still being discussed by the Cabinet's economic team.

Dealers said buying interest in the U.S. currency below Rp
8,400 prevented an even sharper fall, thus avoiding a repeat of
Thursday's wild gyrations during which the dollar skidded as much
as 4.1 percent to Rp 8,280.

On Friday, the dollar traded between Rp 8,355 and Rp 8,535.

The liquidation of long dollar positions was sparked Thursday
by news that the Indonesian president had raised the possibility
of imposing some form of capital controls at a regular meeting
with economic ministers and advisers Monday. If Indonesia were to
peg its currency to the dollar, it is expected to do so at a
stronger rate.

Some analysts, however, suggest other measures to stabilize
the rupiah.

"A more practical and realistic choice is to step up the
monitoring of capital flows in and out of the country, which Bank
Indonesia is currently overseeing," WestLB Research analyst
Syetarn Hansakul said in a note to clients, adding that this
could deter speculative selling in the rupiah.

The rupiah's strength spilled over to other regional
currencies, as market participants unwound long dollar positions.

But trading was choppy as the dollar strengthened against the
yen and corporate dollar demand emerged when the U.S. currency
dropped against other Asian units, dealers said.

Meanwhile, participants await the release of U.S. non-farm
payrolls and unemployment data later Friday.

The South Korean won strengthened as foreign investors
reentered the local stock market, ignoring comments from the
Finance Ministry that volatility in the foreign exchange market
isn't desirable and that the ministry is keeping an eye on the
currency market.

If U.S. unemployment is higher than expected, it "could
potentially unnerve regional forex and stock markets again,"
WestLB's Hansakul said. "We see (the) direction of U.S. interest
rates and asset markets to have an overriding impact on the
regional currencies across the board in the near-to-medium term."

The government is reluctant to see the won strengthen
significantly because it could hurt exports. The dollar finished
at 1,125.2 won, down from Thursday's close at 1,132 won.

In Manila, the dollar closed at 42.465 pesos on the Philippine
Dealing System, down from Thursday's close at 42.580 pesos. The
Philippine central bank kept its closely watched overnight
borrowing rate unchanged at 10 percent, a move widely expected by
the market due to the stable peso.

In late trading, against the Singapore unit, the U.S. dollar
was at S$1.7273, down from S$1.7318 late Thursday.

The dollar also fell against the Thai currency, ending Asian
trading at 39.045 baht from 39.125 baht late Thursday.

In Taiwan, the U.S. dollar ended at NT$30.831, unchanged from
Thursday's finish.

U.S. dollar-buying by the central bank offset upward pressure
on the local currency from rising Taiwan stocks, dealers said.